 PartnerShift—How
Distributors Profit from the Partnering Trend
By Ed Rigsbee, CSP
(1470 Words)
We need banking, but do we need banks? We need groceries but
do we need supermarkets? We need services and consumables but do we need to
receive these things in traditional ways? Do we need distributors?
The answer is: Only if distributors truly create value in
the process of getting stuff from the source to the user. At my seminars, when I
ask distributors what their product is—the usual answer is service. WRONG!
Your product is logistics. Wal-Mart has done an excellent job of
disintermediating those that Sam Walton believed did not add enough value to the
chain. What about your customers and suppliers? What do they say about you?
My research indicates that for you to cost effectively
achieve world-class levels of logistic services, you must adapt Total
Organizational Partnering. I realize partnering is a term that has been grossly
abused over the last decade, none-the-less; it is what you must achieve.
Partnering is an idea that is loosely used to describe
anything from teamwork to alliances to contractual partnerships. Partnering, as
I define it, is the process of two or more entities coming together for the
purpose of creating synergistic solutions to their mutual challenges. Again, I
recommend you adopt Total Organizational Partnering as your business strategy.
Partnering is not a flavor-of-the-month management strategy
to be hastily adopted and then as quickly abandoned, rather a long-term strategy
for success. Partnering is not instant gratification! To adopt Total
Organizational Partnering, you'll need to understand the Partnering Pentad
Model. A pentad is simply the name given to a group of five. The Partnering
Pentad represents the five key areas of your business. In each of the five areas
you must develop outrageously successful relationship (alliance) strategies. It
is the quality of these relationships that hold all the areas together. Once in
place, you'll have Total Organizational Partnering.
- Strategic
External Alliances is the area of your business where you develop
alliances with outside entities for activities where you have core
competencies that complement one another. For many distributors, these
include buying/marketing groups and targeted specialty alliances for
software/technology development. By sharing core strengths, tow or more can
create an environment of synergy yielding all involved more than the some
total of their collective contributions. Land mines to watch out for are
core values of alliance members being too different; circles of interest
overlap being too little, and continual management change of one or more
alliance partners.
- Supplier
Alliances is the area that many distributors are most concerned—no
supplier, certainly no customer. Just-in-time delivery (JIT) and electronic
data interchange (EDI) ordering have become commonplace today. Eventually,
you will have these relationships both up and down the supply
chain—providing you are still in business. Frequently, what I here from
suppliers about their customers is, "They're talking marriage but
acting one night stand." Not long ago I delivered an opening keynote
presentation to an association of industrial distributors. Unfortunately,
upon visiting the web site of one of that industry’s major suppliers, I
noticed that very few of their distributors had hyperlinks to the
distributors’ own web sites. I call that incredibly stupid—missed
opportunity. To successfully compete in the world of B2B e-commerce, you
must adopt alliances. The biggest land mine in this area is to neglect
reviewing the quality of the relationship and exploring areas for
improvement. What is it that you do that your suppliers cannot? Which of
your activities actually adds value to your suppliers’ efforts and desire
to get their goods to the end user?
- Customer
Alliances weigh heavy in determining your total volume and
profitability. In this area, you must be externally driven. Your customers
will consider you an important vendor as long as they feel they're receiving
good value. Value-added is a term that much is being written about.
Integrator, Applied Distributors, is now documenting their value-added
services with their customers. Agriculture and food processing conglomerate,
Cargill has moved to value-based purchasing. They measure the total value
proposition of their suppliers rather than just buy on price alone. You must
be value driven rather than product driven to understand what your customers
want. What they perceive as value is their reality. The important land mine
to watch out for is short-term thinking on your part when making customer
relationship decisions.
- Employee
Alliances to many distributors is a non-issue. Meaning, they
don't. What motivated the WWII generation is different from what motivates
baby boomers and is different from what motivates the GenXers. Just because
something motivates you, it doesn't necessarily mean it will motivate those
of a different generation than yours. If you want your employees to have an ownership
in your business—even though they don't have a legal ownership and to hold
sacred the business as you do—you must empower your employees.
Empowering means giving them the authority and encouraging them to
accept the responsibility to do the job. Then acknowledge their successes
and failures in an environment of safety—one where you encourage and
reward risk taking. The major land mine to watch out for is the Ego Trap,
yours of course. To give power, you must be a powerful person, one who
possesses personal power rather than power simply acquired from your
position. Permission cards and employee recognition certificates are a great
start.
- Owners
or CEOs as the Optimal Partner is the final and in many ways the most
important leg of the pentad star. Not the most important from the
perspective that all revolves around you, but that of having a culture of
true partnering. True partnering start at the top. You must lead the charge
and show by your actions, more than your words, that Total Organizational
Partnering is truly your preferred and accepted business strategy. The
critical land mine here is when you arrogantly believe that you are at the
center of the pentad and that all the alliances should revolve around you.
The coveted center of the pentad star is reserved for all the relationships
that bind the separate legs.
Globalization
is the primary driver behind Partnering Alliances. Large multinational companies
are building alliance relationships to gobble up market shares in every
conceivable industry and location. Large families of businesses are competing against one another. As such,
smaller organizations feel the pressure and the Partnering trend becomes monkeys
see, monkeys do. A secondary driver is based on the fact that organizations
generally adopt a new paradigm based on the recommendations of others. Change
evolves through one’s witnessing the success of others. Organizations and
leaders with strong reputations within an industry or economy have immense
influence over their contemporaries.
While
I have witnessed many companies profit handsomely from alliance relationships, I
have also seen them scramble to get on the partnering bandwagon with little
regard for the quality of partners they select. Admirable businesses like Timex
have discovered that the wrong partner can cost millions of dollars. Creating
successful Partnering Alliances that will pay off in terms of increased market
share, know-how or earnings diversification is no easy chore.
Today, consolidations and rollups are of great concern to
many distributors. In the February 2000 issue of Industrial
Distribution, Bill Wade stated, “The basic premise couldn’t be any
simpler. Take a highly fragmented industry—like distribution—facing
technological change, customer upheaval or chronic financing difficulties. Add
in a few well-healed foreign firms or, worse, a couple of previously unknown
competitors from outside the business.
Since the industry leaders are probably family-run businesses with limited
succession strategies, the next step to protect profit and continue growth is
clear: consolidate.”
A
consolidation or rollup, as it’s frequently called, generally occurs when an
organization or individual with deep pockets sets out to buy several small
companies in a fragmented industry and rein them in under a new or collective
pennant. Does this sound familiar? In 1997 the National Association of
Wholesale-Distributors reported that 42 of the 54 industries they studied had
been significantly affected by consolidation. Frequently a professional
management and buying strength create economies of scale that allows the
consolidator to pluck the low hanging
fruit in the industry. They will invest significantly in systems to
eliminate the duplication of effort and inefficiencies that exist within the
industry being consolidated.
If
your organization is sick and bleeding, this plan will not deliver the quick
results you most likely desire. As I stated, this is not a quick fix. If you
lead a healthy organization, your best strategy to remain profitable and
independent is Total Organizational Partnering. To protect against being
disintermediated, stable and incremental improvement in all five pentad areas
will deliver the most successful long-term results. Total Organizational
Partnering will assist you in becoming a world-class distributor—one that adds
value to the chain and understands logistics.
Copyright
© 2008, Ed Rigsbee
# # # # #
Adapted from PartnerShift-How
to Profit from the Partnering Trend by Ed Rigsbee, CSP, published by John
Wiley & Sons, New York, October 2000. Ask for PartnerShift at your
local bookstore. All of Rigsbee’s books are available from Amazon.com Ed Rigsbee,
CSP is the author of PartnerShift,
Developing Strategic Alliances and
The Art of Partnering. He has experience in distribution, retail, outside
sales, sales management, owned a manufacturers representative firm, been an
adjunct professor and is a soccer referee. He has over 1,500 published business
articles and is a regular keynote presenter for major corporations and national
trade and professional associations.
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